Inside Health

Behind Those Medical Malpractice Rates

By JOSEPH B. TREASTER and JOEL BRINKLEY

Published: February 22, 2005

Speaking before hundreds of doctors and medical workers in a St. Louis suburb last month, President Bush called attention to a neurosurgeon on stage with him in the small auditorium. The doctor, the president said, was paying $265,000 a year in premiums for insurance against malpractice claims.

Such high prices, ''don't start in an examining room or an operating room,'' the president declared. ''They start in a courtroom.''

Indeed, at many recent appearances, Mr. Bush has complained about the ''skyrocketing'' costs of ''junk lawsuits'' against doctors and hospitals.

But for all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. And last year, the trend in payments for malpractice claims against doctors and other medical professionals turned sharply downward, falling 8.9 percent, to a nationwide total of $4.6 billion, according to data compiled by the Health and Human Services Department.

''There is an underlying cost push,'' said J. Robert Hunter, the director of insurance for the Consumer Federation of America, who is a former insurance regulator in Texas. ''But there has not been an explosion of big jury verdicts or settlements. It's a constant drip, drip every year.''

Lawsuits against doctors are just one of several factors that have driven up the cost of malpractice insurance, specialists say. Lately, the more important factors appear to be the declining investment earnings of insurance companies and the changing nature of competition in the industry.

The recent spike in premiums -- which is now showing signs of steadying -- says more about the insurance business than it does about the judicial system.

''You get these jolts in insurance prices periodically, and they attract a lot of attention,'' said Frank A. Sloan, a Duke University economist who has been following medical malpractice trends for nearly 20 years. ''They're a result of a confluence of many things.''

Data compiled by both the federal government and by insurance organizations show costs for the insurance companies climbing steadily over the last decade at an average annual rate of about 3 percent, after adjusting for inflation. Over most of that period, premiums for doctors rose modestly and sometimes even dropped as the insurance companies battled for market share in a scramble to collect more money to invest in strong bond and stock markets. But when the markets turned sour and the reserves of insurers shriveled, companies began to double and triple the costs for doctors.

''The insurers were catching up, getting to where they should have been,'' said Larry Smarr, the president of the Physician Insurers Association of America, a trade group of companies that provide more than 60 percent of the nation's medical malpractice insurance.

While acknowledging the impact of industry forces and practices on prices, Mr. Smarr and many others in the insurance industry still regard lawsuits as their biggest problem. Claims of medical malpractice are typically complex and are rarely paid without a lawsuit or the threat of a lawsuit. If the insurance companies could find a way to limit payments for lawsuits, they say, they could significantly reduce their costs.

President Bush, supported by the insurance industry and the American Medical Association, is proposing a remedy: a national limit on what juries can award in medical malpractice cases. Such a limit, or cap, has often been cited by the president as an important part of what has been called tort reform -- limiting what Mr. Bush calls costly and frivolous lawsuits.

The Bush administration is pushing for a $250,000 limit on jury awards to victims of medical mistakes and their families for pain and suffering. No limit would be placed on the more quantifiable payments for economic losses, including medical expenses and lost wages.

Introduction of legislation calling for such national medical malpractice limits -- traditionally left to individual states -- is at least a month away. Still, the administration has been bolstered by stronger Republican majorities in the House and Senate and by last week's signing into law of a measure that would move many class-action lawsuits to federal court, sharply limiting their potential spread.

Senate Majority Leader Bill Frist of Tennessee, who is a doctor, calls malpractice award limits ''a majority priority.'' The House has passed similar proposals seven times in the last 10 years, most recently in 2003.

While this Congress might be the best opportunity yet for supporters of jury award limits, there will certainly be a fierce battle from Democrats, consumer groups and plaintiffs' lawyers.

Consumer advocates say such limits would mean that some of the most seriously hurt patients would not receive fair compensation. Also, they say, in the death of an infant, an elderly person or a homemaker, there would be little compensation because of the prevailing view that there could be no economic loss because no income was being earned.